The following article by NPLaw analyzes legal aspects related to the failure to perform investment obligations under contracts and provides practical legal advice to help enterprises and investors prevent and handle legal risks in practice.
I. Impacts of failing to perform investment obligations under contracts in the current context
Failure to perform investment obligations under a contract is not merely a breach of civil–commercial commitments between the parties; it also results in various adverse consequences for the business environment and socio-economic development.
For the contracting parties:
- The defaulting party often faces liability for damages, contractual penalties, and loss of reputation in business relations.
- The aggrieved party suffers direct financial losses (such as project delays, lost business opportunities, and increased dispute resolution costs) as well as indirect losses related to reputation and relationships with partners and clients.
For the investment and business environment:
- Breaches of investment obligations erode the confidence of enterprises and investors, especially in joint ventures, business cooperation projects, or BOT, BT, and PPP contracts.
- When disputes arise and are prolonged, the business environment becomes unstable, legal risks increase, and the market’s attractiveness decreases.
For the socio-economic sphere:
- Numerous projects are either not implemented or are delayed because one party fails to contribute capital or carry out investment activities as committed, leading to the waste of land, infrastructure, and social resources.
- This negatively affects sustainable development processes, particularly in infrastructure, energy, and real estate sectors, as project delays directly impact communities and government development policies.
Accordingly, failure to perform investment obligations under a contract is not only a matter of civil liability between the parties but also poses potential risks to the investment environment and public interests. It is therefore essential to analyze the legal basis and handling mechanisms for such situations.
II. What is failure to perform investment obligations under a contract?
1. Definition
An investment contract is an agreement between parties to implement a specific investment project or business activity, clearly stipulating each party’s rights, obligations, responsibilities, and benefits. “Failure to perform investment obligations under a contract” refers to a situation where a party fails to perform, improperly performs, or incompletely performs commitments regarding capital, assets, technology, human resources, or other contractual obligations.
Common manifestations include:
- Failure to contribute capital, contributing late, insufficiently, or in the wrong form of assets as committed;
- Fail to fulfill technical obligations, technology transfer, or supply of materials and machinery as agreed;
- Delaying, avoiding, or unilaterally suspending performance, causing project stagnation and delays;
- Breaching commitments on ensuring the rights, benefits, or distribution of investment returns to the other party.
2. Factors determining the severity of the breach
The seriousness of a breach of investment obligations depends on several factors:
- Nature and scope of the breached obligation: If the breached obligation is fundamental and decisive to the project’s viability (e.g., capital contribution, technology handover), the breach is deemed more serious.
- Actual damages: Including financial losses, lost business opportunities, commercial reputation damage, and other related costs. The greater the damage, the more serious the breach.
- Intent and conduct of the breaching party: Breaches due to force majeure may be mitigated. In contrast, intentional breaches, evasive behavior, or abuse of legal loopholes to misappropriate capital/assets are considered aggravated.
- Impact on partners and third parties: Whether the breach affects contractors, suppliers, employees, or government agencies.
- Remedial actions and good faith: If the breaching party actively compensates for damages and continues performing the contract, the breach may be viewed as less severe.
Based on the above factors, it can be seen that determining the seriousness of a failure to perform investment obligations plays a crucial role as a basis for applying remedial measures, such as claims for damages, contractual penalties, termination of the contract, or initiation of legal proceedings before a court or arbitration tribunal.
III. Legal regulations on failure to perform investment obligations under contracts
1. Dispute resolution procedures
Failure to perform investment obligations constitutes a contractual breach. Under Article 14(1) of the Law on Investment 2020, disputes related to investment activities in Vietnam shall be settled through negotiation and mediation. If not resolved, the dispute shall be settled by arbitration or courts in accordance with Article 14(2)-(4) of the same law.
Accordingly, when a dispute the parties may choose the following mechanisms:
- Negotiation and mediation: The parties directly discuss to agree on remedies, contract amendments, extensions, or other solutions.
- Commercial arbitration: If the contract contains an arbitration clause, the dispute will be resolved at an arbitral institution (e.g., VIAC). Advantages include speed and finality of awards.
- Competent courts: If no arbitration agreement exists or one party initiates litigation, the case will be resolved through civil/commercial court proceedings.
2. Right to initiate legal action
Under Article 14(1) of the Law on Investment 2020, disputes between domestic investors, foreign-invested enterprises, or between such investors and competent state agencies related to investment activities in Vietnam may be settled by Vietnamese arbitration or courts, except certain disputes involving foreign investors as specified in Article 23(1) of the Law. In those cases, disputes may also be resolved by:
- Vietnamese courts;
- Vietnamese arbitration;
- Foreign arbitration;
- International arbitration;
- Ad hoc arbitration agreed upon by the parties.
Thus, the aggrieved party may file a lawsuit at a competent court or arbitration institution if the other party fails to perform its investment obligations.
3. Legal consequences
Depending on the severity of the breach, the legal consequences may include:
- Specific performance: The Court/arbitral tribunal may order the breaching party to contribute capital, transfer assets or technology as contracted.
- Damages: Under Articles 360 and 419 of the Civil Code 2015, the breaching party must compensate for actual damages, including lost profits resulting from the breach.
- Contractual penalties: Where agreed by the parties, contractual penalties may be imposed in accordance with Article 300 of the Law on Commerce 2005.
- Termination or rescission: The aggrieved party may unilaterally terminate or rescind the contract under Article 428 of the Civil Code 2015 and request restitution.
- Administrative-investment sanctions: Authorities may revoke investment registration certificates if the project is not implemented on schedule or capital is not contributed as committed (Article 48 of the Law on Investment 2020).
4. Administrative sanctions
In addition to civil liability, the breaching party may face administrative penalties under Decree 122/2021/NĐ-CP on investment-related violations, for example:
- Fines of 50–70 million VND for failing to make or secure deposits, missing procedural deadlines, or failing to increase deposits when required;
- Fines of 70–100 million VND for failing to comply with investment approval documents, failing to complete project liquidation procedures, or suspending projects for over 12 months.
IV. Questions on failure to perform investment obligations under contract
1. Can the contract be terminated?
Under Article 428 of the Civil Code 2015, if a party seriously breaches obligations, rendering the contract’s purpose unattainable, the other party may unilaterally terminate the contract. In investment contracts, failure to contribute capital, delay in project implementation, or breach of fundamental obligations constitutes valid grounds for termination.
2. Can the contract be amended instead of terminated?
In many cases, parties may negotiate amendments or supplements to adapt to actual circumstances. Under Article 420 of the Civil Code 2015 on “fundamental change of circumstances”, if failure is due to objective factors (e.g., force majeure, market fluctuations), parties may request modifications to maintain contractual balance.
3. Will additional costs arise?
Delays in capital contribution, project implementation, or other breaches often result in costs such as:
- Legal and consultancy fees for dispute resolution;
- Interest and compensation for delays in the project schedule;
- Administrative penalties or fees for extensions and permit adjustments.
These costs may be claimed from the breaching party if proven as direct consequences of the breach.
4. Should legal advice be sought?
Investment contract disputes are complex and often involve multiple legal areas (civil, commercial, investment, corporate, land, etc.). Seeking legal advice is essential to:
- Assess the nature and severity of the breach and its legal consequences;
- Propose negotiation, mediation, or litigation strategies;
- Minimize losses and effectively protect lawful rights and interests.
V. Looking for a reputable law firm to handle investment obligation breaches?
In the context of increasingly complex investment disputes, choosing a reputable and experienced law firm is a safe and effective solution. A professional legal advisor can assist in:
- Reviewing and assessing the legal validity of investment contracts;
- Advising on strategies for handling breaches;
- Representing parties in negotiations, mediation, or litigation/arbitration;
- Providing guidance to prevent legal risks in future investment transactions.
For further inquiries regarding failure to perform investment obligations under contracts or other legal matters, please contact NPLaw for direct consultation and support.
